Virtually every high-tax nation has one or several symbiotic tax
havens that reduce damage of excessive taxation. The US uses the
Bahamas and Bermuda, the UK has Ireland, Channel Islands and the
Isle of Mann, Russians depend on Cyprus and India uses mainly
Mauritius. For thirty years the African island nation has had a
very attractive tax treaty based on cultural and religious ties
with India. Mauritius, with a population of 1.3m, accounted for 42
per cent of India's foreign direct investment from 2000 to
2011, worth US$55bn according to Delhi's ministry of
But when India's supreme court ruled in favour of Vodafone
back in January, authorities have proven to be sore-losers trashing
about wildly and blindly one dubious legislative proposal after
another. Some of the more wacky ideas included amending tax-laws
retrospectively and creating overly vague General Anti-Avoidance
Legislators have dropped the more radical proposals since, but
the overall purpose remains clear: any transaction lacking
substance risks being scrutinized. An arrangement would be an
"impermissible avoidance arrangement" if its main purpose
is to obtain a tax benefit and it also has one of the following
It creates rights and obligations, which are not normally
created between parties dealing at arm's length
It results in misuse or abuse of the provisions of the tax
It lacks commercial substance
It is carried out by means or in a manner which is normally not
employed for an authentic (bona fide) purpose
India is reviewing its double taxation agreement with Mauritius
aiming to root out tax avoidance, notably by
"round-tripping" Indian companies that allegedly use
Mauritius to reinvest covertly at home. And perhaps they will
succeed in bringing down one tax haven by shooting themselves in
the leg. But alternatives such as the UAE and Cyprus would quickly
take over. Companies that invest in India must deal with increased
tax-planning hurdles but with enough substance they can still
benefit from low tax jurisdictions.
The Freemont Group can review the tax-implications of your
investment in liaison with Indian tax lawyers and propose and
execute the most fiscal friendly approach.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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